On the heels of Google's $199 Nexus 7, Pacific Crest analyst Andy Hargreaves is predicting that Apple will introduce a 7.85-inch iPad in October:

"We anticipate an entry-level 7.85" iPad with 8GB of NAND capacity to price at $299 with an initial gross margin of 31%. We estimate Apple will sell 10.0 million 7.85" iPads in FQ1 (Dec. 2012) and 35.2 million in all of F2013. Based on estimated component order volume, we believe our iPad mini unit estimates are well within Apple's production capacity. We anticipate 25% cannibalization of the larger 9.7" iPad (for every four 7.85" iPads added, we reduced our 9.7" iPad estimate by one), so our total F2013 iPad estimate increases to 91.6 million from 65.2 million," he wrote in a report published Thursday.

Tom Mainelli, IDC's research director of Mobile Connected Devices, believes that Apple could increase its market dominance with a iPad Mini. "If Apple launches a sub-$300, 7-inch product into the market later this year as rumored, we expect the company's grip on this market to become even stronger," he wrote in a report issued ahead of the Nexus 7's unveiling.

Hargreaves suggested that Apple would kill the $399 iPad 2, and could introduce a 16GB iPad Mini for a similar price. He also expects a refresh in October for the current 9.7-inch iPad, speculating that it will have a lighter battery and oxide TFT screen and new camera location.